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Federal Register / Vol. 86, No. 143 / Thursday, July 29, 2021 / Rules and Regulations
enacted December 27, 2020, Public Law 116260, revises the conditions and requirements for refinancing debt in the 504 Loan Program as follows:
1 With respect to Debt Refinancing with Expansion, 13 CFR 120.882e, the Economic Aid Act increases the amount of existing indebtedness that may be refinanced as part of a 504 Project from not more than 50 percent of the project cost of the expansion to not more than 100 percent of the project cost;
2 With respect to Debt Refinancing without Expansion, 13 CFR 120.882g, the Economic Aid Act:
a Eliminates the condition that this program shall only be in effect in any fiscal year during which the cost to the Federal Government of making guarantees under 13 CFR 120.882g and under the 504 Loan Program is zero;
b Eliminates the requirement that a CDC limit its financing under the 504
Loan Program so that, during any Federal fiscal year, new financings under 13 CFR 120.882g do not exceed 50% of the dollars the CDC loaned under the 504 Loan Program, including under 13 CFR 120.882g, during the previous fiscal year, unless otherwise waived;
c Eliminates the prohibition against Premier Certified Lender Program PCLP CDCs using delegated authority to approve loan applications for Debt Refinancing without Expansion;
d Reinstates an alternate job retention standard that was previously removed from the Debt Refinancing without Expansion Program by section 521 of division E of the Consolidated Appropriations Act, 2016, Public Law 114113, enacted on December 18, 2015;
e Revises the definition of qualified debt to mean debt that was incurred not less than 6 months before the date of application instead of 2 years before the date of application;
f Removes from the definition of qualified debt the condition that the debt not be subject to a guarantee by a Federal agency; and g Eliminates from the definition of qualified debt the requirement that the borrower be current on all payments for not less than 1 year before the date of the application for refinancing.
As described in the section-by-section analysis below, SBA is issuing this interim final rule to conform the current rules to the requirements of the Economic Aid Act.
II. Comments and Immediate Effective Date This interim final rule is effective without the advance notice and public comment required by section 553 of the
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Administrative Procedure Act APA, 5
U.S.C. 553b3B, because section 303
of the Economic Aid Act authorizes SBA to issue regulations to implement the amendments described above without regard to notice requirements.
In addition, pursuant to section 553d1, this rule is exempt from the APAs 30-day delayed effective date requirement on the basis that it is a substantive rule that relieves restrictions relating to the debt refinancing options available to small businesses. SBA has also determined that, pursuant to section 553d3, there is good cause for dispensing with the 30-day delayed effective date on the grounds that it would be contrary to the public interest.
To meet the immediate debt refinancing needs of small businesses impacted by the COVID19 pandemic, it is essential to be able to implement the statutory changes to the refinancing programs as expeditiously as possible.
Although this rule is being published as an interim final rule, comments are solicited from interested members of the public. These comments must be submitted on or before the deadline for comments stated in this rule. SBA will consider any comments it receives and the need for making any amendments as a result of the comments.
III. Section-by-Section Analysis Section 120.882e. This provision currently states that the amount of existing indebtedness that may be refinanced is limited to no more than 50
percent of the project cost of the expansion. Section 328a2A of the Economic Aid Act amends section 5027B of the Small Business Investment Act to increase the percentage and, accordingly, SBA is revising this provision to increase the amount of existing indebtedness that may be refinanced to no more than 100
percent of the project cost.
Section 120.882g3. This section currently provides that the approval of a Refinancing Project is subject to the requirement that the cost to the Federal Government of making guarantees under 13 CFR 120.882g and under the 504
Loan Program is zero during the fiscal year in which the guarantee is made.
Section 328a1 of the Economic Aid Act repeals this statutory requirement and, therefore, SBA is removing this requirement.
In its place, this provision will set forth the conditions and requirements that will apply to the refinancing of a loan that is subject to a guarantee by a Federal agency or department. As indicated above, the Economic Aid Act removes the prohibition against refinancing a loan that is subject to a
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guarantee by a Federal agency or department. Although these loans may now be refinanced in the Debt Refinancing without Expansion program, the rule will provide that they must comply with SBAs policies related to the refinancing of existing 504
and 7a loans, including that:
1 For an existing 504 loan, either both the Third Party Loan and the 504
loan must be refinanced, or the Third Party Loan must have been paid in full;
and 2 for an existing 7a loan, the CDC
must verify in writing that the present lender is either unwilling or unable to modify the current payment schedule.
In addition, in the case of same institution debt, if the Third Party Lender or the CDC affiliate as authorized under 13 CFR 120.820 is the 7a lender, the loan will be eligible for 504 refinancing only if the lender is unable to modify the terms of the existing loan because a secondary market investor will not agree to modified terms.
In addition, the rule will require that the refinancing of any Federallyguaranteed loan will provide a substantial benefit to the borrower.
Substantial benefit will mean that the portion of the new installment amount attributable to the debt being refinanced must be at least 10 percent less than the existing installment amounts.
Prepayment penalties, financing fees, and other financing costs must be added to the amount being refinanced in calculating the percentage reduction in the new installment payment. The portion of the new installment amount attributable to Eligible Business Expenses will not need to be included in this calculation. The rule will also allow the Director, Office of Financial Assistance D/FA or designee to approve an exception to the 10 percent reduction requirement for good cause, and will not allow PCLP CDCs to use their delegated authority to approve a loan requiring this exception.
Section 120.882g11. This section currently states that PCLP CDCs may not use delegated authority to approve refinancing under 13 CFR 120.882g.
Section 328a of the Economic Aid Act removes this statutory prohibition and, accordingly, SBA is removing the current language. In its place, the rule will state that PCLP CDCs may not approve the refinancing of same institution debt under their delegated authority and must submit the loan to SBA for approval. This requirement is consistent with SBAs long-standing policy of prohibiting its participating lenders from using their delegated authority to approve the financing of
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